IMF Urges Serbia to Fix Non-Performing Loans Without Bad Bank

Serbia needs to solve its non-performing loans quickly as budget constraints prevent the transfer of distressed debt into a bad bank, an International Monetary Fund official said.

The largest former Yugoslav republic, which is adapting its fiscal policy to fulfill conditions for standby aid from the the Washington-based lender, needs to eliminate the credit backlog to spur job creation, Daehaeng Kim, the IMF’s representative in Serbia, said in Belgrade on Wednesday.

“Creating a bad bank maybe a solution if they have fiscal space for that, but it’s a difficult assumption,” Kim said at a lecture at the Belgrade School of Economics. A bad-bank approach would take years to wipe out some non-performing loans and “it’s better to unclog than take water out of the bucket,” he said.

Improving lending activity is a key part of Premier Aleksandar Vucic’s goal to restart economic growth after the country’s fourth recession since 2009 has left one in five Serbians out of work. Non-performing loans stood at 436.7 billion dinars ($3.9 billion) at the end of September, accounting for 23 percent of all credit, according to the central bank.

The IMF approved a 1.2 billion-euro ($1.3 billion) precautionary program for Serbia on Feb. 23 to help bring the budget to a sustainable position within three years. Serbia needs to improve institutions, upgrade infrastructure, make markets more efficient, deepen financial intermediation and overhaul unprofitable companies to return to growth, according to Kim.

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